Entrepreneurial Lending: Corporations Step Up
By: Susan VanEpps
How can Amazon, Google, IBM and other corporate giants help your business? Besides providing your business news, computer software and latest book on entrepreneurialism, these global organizations have expanded from their original mission in recent years to help finance small business. Find out how they might be able to assist your organization.
Since the economic downturn beginning in 2008, small business loan approvals from banks have fallen sharply. Estimates show a decrease in approvals from nearly half of all applications five years ago, to less than 15 percent in 2012. As a result, alternative lending from business and government organizations has emerged as one of the biggest areas for growth in the lending industry.
Segments of this growth are originating with large corporations freeing up their capital to aid start-ups and entrepreneurs. For small companies, which might not qualify for loans or are in need of amounts too small for traditional underwriting, the funds obtained allow them to expand their use of the lender’s products and services, while preserving their existing capital for other expenses. Examples include:
- Amazon, through the Amazon Lending division, recently began making loans to its existing merchant sellers in amounts ranging from $1,000 to $800,000. Most interest rates are reported to be set at 13.9 percent – though some sellers receive offers as low as one percent. Qualifying small business merchants must then use the loans to increase their inventories for sale through Amazon, which takes commission on every sale.
- Google launched a pilot program last year, Ad Words Business Credit, offering businesses loans of $2,000 to $10,000 to participate in the company’s Ad Words marketing program. More than 1,400 U.S. companies signed on during the pilot, and the program is expected to grow to more markets in the coming year.
- Both IBM and Cisco Capital Systems have delved into the world of financing small business technology needs. With both programs, companies can finance the purchase or lease of system needs at a small business scale, including structured payments with low monthly fees. At the same time, small businesses are able to continually access the latest technology, including cloud services, and analytics programs designed to help them make better business decisions and identify new market opportunities. IBM’s $1 billion initiative was launched in late 2011, and nearly 7,000 businesses participated until the funds were exhausted. In November 2012 IBM announced a new $4 billion lending program aimed at an even larger pool of businesses. Andy Monshaw, general manager of IBM Midmarket Business, states that “Capital outlays for small and medium businesses have become quite difficult” but that IBM’s program makes it possible for them “to be able to invest, and get approval to invest very quickly.”
- Sam’s Club offers no-collateral loans of $5,000 to $25,000 to their qualifying small business customers. The program, run by Superior Financial Group, features a one-page online application form and interest rates ranging from 9.1 to 10.9 percent.
Analysts observe that for the entrepreneur, the programs provide some of the critical options between higher-interest credit cards, and a bank’s denial on a business loan application. As one banker stated, “Five thousand dollars is a money-losing business loan given the time and effort required to underwrite and document [at a bank]. This type of lending makes perfect sense for [these companies].”